Fascinating discussion of Newspaper vs online media economics
over here from Ethan Zuckerman of Global Voices. I'm going to quote the piece in quite a bit of detail as it is very interesting on a number of levels:
Firstly, the economics of a regional paper:
....the paper relies on dozens of unpaid correspondents and pay-per-piece freelance contributors, it also has eight editors, several reporters, professional compositors/paginators, and departments for administration, circulation and ad sales. My friend guessed that, with everyone in the office, day and night shift, there were at least sixty full-time employees responsible for producing, distributing and monetizing the paper.
I don’t mean to suggest that this is excessive, or that the newspaper’s (legendarily tightfisted) management is running anything other than a lean, efficient operation. While the office is responsible primarily for the 26,000 circulation daily newspaper (not bad for a paper that serves a county of 135,000 people), it also publishes a 6,000 circulation paper focused on the northern Berkshires and southern Vermont. And the mighty four-color presses in the basement produce an additional Vermont paper, helping defray the costs of production. (Given the parent company’s financial difficulties, and the downgrade of their bonds deep, deep into junk status, any efficiencies are surely appreciated.)
What I was amazed by was how much advertising and subscription revenue the paper must generate to support dozens of full-time jobs. I haven’t been able to find revenue numbers specifically for the paper, but a back of the hand calculation suggests that it must be generating significantly more than $2 million a year in subscription and ad sales to support salaries and production costs. It’s quite possible that subscription is what keeps the paper alive - at a retail price of $176.88 for daily home delivery, subscriptions could generate a couple million a year. (I assume not everyone is paying retail price, which means that some significant part of the paper’s revenue picture comes from advertising.)
Ethan compares this with his online service's economics:
I help run a fairly popular online citizen media site, which is visited by roughly 300,000 visitors a month. We’re doing a great deal of strategic planning at the moment, looking for ways to broaden our revenue base from foundation support and corporate parterships to include online advertising revenue. As we run the models, the numbers aren’t especially pretty. Suffice it to say, very few of our models project us making a million dollars a year in online ad sales. Fortunately, we’ve got less than half a dozen full-time employees as well as an army of volunteers and contractors, so we don’t need nearly as much revenue to support our work as our local newspaper does.
The issue is the orders-of-magnitude discrepancy in Ad values per reader
The difference in ad pricing between online and print advertising is something I’m finding mind-boggling. Advertising inserts in the Berkshire Eagle are priced at a base rate of $45 per thousand customers for two print pages, targeted by zipcode. Those prices don’t include production costs - the advertiser is responsible producing the inserts and delivering them to the production facility. The cost covers the insertion of the ad into the appropriate papers and their delivery.
This model of advertising pricing - called CPM (cost per thousand) - is what early internet companies tried to use to monetize content. In the early days of Tripod, we called our friends who worked for glossy magazines, found out what they were charging for ads in CPM terms - usually $20-$60 - and asked our advertisers to pay at least as much. Our logic? Since you can’t click on a magazine ad, they simply build brand, while ours build brand and can lead to sales.
We were able to earn $45 CPMs for a little while, until advertisers started to question our logic. In some cases, they saw other sites offering much cheaper rates; in other cases, they questioned whether the ads really were leading directly to sales, as they could track who’d clicked on the ads. CPM rates fell across the industry. Some sites continue to make pretty good money on a CPM basis, especially sites with highly targetted content likely to appeal to a certain type of customers. Federated Media, an advertising network that focuses on technology content, offers CPM ads from $3 to $26. Most content providers don’t see rates that high. According to Technorati’s 2008 state of the blogosphere, US bloggers who accept advertising saw a mean CPM of $4.20, but a median of $1.20 - that implies a small number of bloggers earning high CPMs for highly targetted content, and a lot of folks selling impressions at $1 per thousand.
Ethan thinks through the possible reasons for the disparity in values:
Basically, there are two ways to explain the disparity in online and offline ad cost. One is to argue that paper ads are, for some combination of reasons, ten to a hundred times more effective than online ads. The other is to argue that advertisers are better at pricing online ads than offline ads.
Or advertisers are massively underpricing online Ads? Anyway, given Ethan's hypotheses, he comes to a conclusion that concerns him (and us)
Here’s my concern. If I’m right and print advertising costs are fundamentally irrational, then it’s possible that the way we’ve built media in the United States can’t survive a transition to a more rational market. That would be bad. Newspapers aren’t just businesses - they serve a critical function in a democratic society, informing citizens so they can make intelligent voting decisions, lobby their elected representatives on issues of their concern and hold political and business powers accountable.
What if the idea that commercial enterprises should carry out the public interest function of journalism is built on a fundamentally broken model? What if advertising worked pretty well as a way of subsidizing public interest journalism only so long as advertisers didn’t understand the effectiveness of their ads?
But, Ethan also shows in passing that one potential reason for higher prices may be a shortage of inventory in the paper model, thus making it more expensive:
Why are advertisers willing to pay these prices without strong evidence that they give an effective yield? They may not have much choice - other options in a community where many customers are offline are also pay per impression and may be similarly expensive. The worry the local Price Chopper has is that if they don’t produce an insert and the Big Y does, perhaps they lose their share of the local customerbase.
No conclusions here from us, its just a fascinating essay. Its blogged more as a record and for something to mull over for now.
